Executive Summary:
This circular from the Reserve Bank of India (RBI), dated August 21, 2020, addresses supervisory concerns regarding the review and renewal of credit facilities by Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, and Urban Cooperative Banks (UCBs). It reiterates the importance of timely and comprehensive credit review/renewal processes, discouraging frequent ad hoc reviews. Banks are instructed to adhere strictly to their Board-approved policies and capture all review/renewal data accurately.
Key Points / Main Content:
Credit Policy and Review:
• Banks must have a Board-approved credit policy that includes the periodicity and methodology for reviewing and renewing credit facilities.
• The policy should prescribe differential time schedules for review/renewal based on borrower risk, with more frequent reviews for lower-rated borrowers.
• UCBs must have policy guidelines for periodic review of working capital limits.
Non-Performing Asset (NPA) Classification:
• If regular/ad hoc credit limits are not reviewed/renewed within the prescribed timeline from the due date/date of ad hoc sanction, the account will be treated as a Non-Performing Asset (NPA).
Supervisory Concerns:
• The RBI has identified concerns including frequent ad hoc reviews/renewals, inaccurate data capture in banking information systems, and non-coverage of review/renewal activities under audit mechanisms.
RBI Directives:
• Banks should avoid frequent ad hoc reviews/renewals without justifiable reasons.
• All data related to regular and ad hoc reviews/renewals must be captured in core banking/management information systems.
• Review/renewal processes must be included within the scope of concurrent/internal audit/internal control mechanisms immediately.
Impact Analysis:
Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, and Urban Cooperative Banks:
Impact: Required to ensure their credit review and renewal processes are timely, comprehensive, and compliant with RBI guidelines. They will face increased scrutiny regarding adherence to Board-approved policies and data accuracy.
Action Required: Review and update credit policies as needed, ensure proper data capture in core banking systems, and include review/renewal processes under internal audit mechanisms.
Auditors (Internal and External):
Impact: Auditors must include the review/renewal processes of credit facilities in their audit scope.
Action Required: Incorporate review/renewal activities into audit plans and procedures to ensure compliance with RBI guidelines and internal policies.
Key Entities Referenced
Scheduled Commercial Banks: Refers to all commercial banks included in the Second Schedule to the Reserve Bank of India Act, 1934, excluding Regional Rural Banks (RRBs).
Small Finance Banks: Refers to a specific category of banks in India licensed to carry out basic banking activities.
Urban Cooperative Banks: Refers to primary cooperative banks located in urban and semi-urban areas in India.
DBOD.No.BP.SC.BC.98/21.04.103/99 dated October 7, 1999: A circular issued by the Reserve Bank of India (RBI) regarding Risk Management System in Banks.
Master Circular for Urban Cooperative Banks on Management of Advances dated July 1, 2015: RBI guidelines for Urban Cooperative Banks regarding the management of advances.
DBR.No.BP.BC.2/21.04.048/2015-16 dated July 1, 2015: A Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances.
DCBR.BPD. PCB MC No.1/2.09.14.000/2015-16 dated July 1, 2015: A Master Circular on Income Recognition, Asset Classification, Provisioning and Other Related Matters UCBs as applicable to SCBs and UCBs respectively
Non-Performing Asset: An asset, usually a loan, that is in default or close to being in default.
RBI/2020-21/27
DoS.CO.PPG.BC.1/11.01.005/2020-21 August 21, 2020
All Scheduled Commercial Banks (excluding RRBs)
All Small Finance Banks
All Urban Cooperative Banks
Madam/Dear Sir,
Ad-hoc/Short Review/Renewal of Credit Facilities
In terms of circular DBOD.No.BP.(SC).BC.98/21.04.103/99 dated October 7, 1999 on
Risk Management System in Banks, Scheduled Commercial Banks (SCBs) are
required to put in place a board approved credit policy, which, inter alia, should
prescribe the periodicity and methodology of review/renewal of credit facilities. The
policy should also prescribe differential time schedules for review/renewal of borrower
limits so that lower rated borrowers whose financials show signs of problems are
subjected to renewal control more frequently. The Master Circular for Urban
Cooperative Banks (UCBs) on Management of Advances – UCBs dated July 1, 2015,
requires all UCBs to lay down policy guidelines for periodic review of the working
capital limits.
2. Further, in terms of the Master Circular DBR.No.BP.BC.2/21.04.048/2015-16 dated
July 1, 2015 on Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances and the Master Circular DCBR.BPD. (PCB) MC
No.12/09.14.000/2015-16 dated July 1, 2015 on Income Recognition, Asset
Classification, Provisioning and Other Related Matters – UCBs as applicable to SCBs
and UCBs respectively, an account where the regular/ad-hoc credit limits have not
been reviewed/renewed within the prescribed timeline from the due date/date of ad-
hoc sanction will be treated as Non-Performing Asset.
पय�वे�ण िवभाग, के�ीय काया�लय, व�� ट�ेड स�टर, स�टर-1, कफ परेड, कोलाबा, मुंबई – 400 005
टेलीफोन: 022- 2216 3395 फै�: 022-2218 0157 ई-मेल - cgmicdosco@rbi.org.in
Department of Supervision, Central Office, World Trade Centre, Centre I, Cuffe Parade, Colaba, Mumbai - 400 005
Tel: 022-2216 3395 Fax: 022-2218 0157 e-mail: cgmicdosco@rbi.org.in
ब�क िहन्दी म� प�ाचार का स्वागत करता है।3. Banks are, therefore, expected to have a detailed Board approved policy on
methodology and periodicity for review/renewal of credit facilities within the overall
regulatory guidelines, and adhere to the same strictly.
4. However, an analysis of practices followed by the lenders while reviewing/renewing
credit facilities has brought out certain supervisory concerns, including that of
frequent/repeated ad-hoc review/renewal of credit facilities instead of regular
review/renewals, non-capturing and/or inaccurate capturing of review/renewal data in
the banking/information systems, and non-coverage of review/renewal activities under
the concurrent audit/internal audit mechanism.
5. In this connection, we reiterate that timely and comprehensive review/renewal of
credit facilities should be an integral part of the Board approved loan policy and credit
risk management framework, and banks should avoid frequent and repeated ad-
hoc/short review/renewal of credit facilities without justifiable reasons. Banks are also
advised to capture all the data relating to regular as well as ad-hoc/short
review/renewal of credit facilities in their core banking systems/management
information systems and make the same available for scrutiny as and when required
by any audit or inspection by Auditors/RBI. Further, the processes governing
review/renewal of credit facilities should be brought under the scope of
concurrent/internal audit/internal control mechanism of banks with immediate effect.
6. We advise that all banks should follow above instructions in letter and spirit.
Yours faithfully,
(Ajay Kumar Choudhary)
Chief General Manager
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